Pie- in-the-Sky Plan puts Florida Taxpayers at too Great a Risk

TALLAHASSEE – Rising property insurance rates are a priority concern in Florida this election year – among both homeowners and employers. With proposals to ease the crisis currently being debated, a diverse group of business leaders today cried foul over gubernatorial candidate Jim Davis’ Hurricane Premium Protection Fund, which takes the risk away from insurance companies and puts the burden on Florida taxpayers.

“Jim Davis is exposing our Floridians to enormous risks with a plan that will result in new taxes. His plan is filled with promises he can’t deliver. In addition, Florida will have no protection from bankruptcy since it is very likely a hurricane or a number of storms will hit Florida well before adequate reserves can be banked in Davis’ proposed fund,” said Barney Bishop, president and CEO of Associated Industries of Florida (AIF).

Obligate the state to assume $20 billion in hurricane losses a year – up to $500,000 per claim - without providing an up-front funding source for reserves; and

Result in “hurricane tax” increases or assessments on Florida policyholders – both homeowners and employers – to cover hurricane losses and debts; and

Not provide for the 40 percent cut in insurance rates that Davis claims will result from his plan. The math used by the Davis plan to support this decrease is based on all private reinsurance being replaced by reinsurance provided by his plan's fund which is based on unduly optimistic and flawed assumptions including:

One hundred percent of rate increases are due to increased reinsurance costs to insurance companies. Not true. In 2005, increased reinsurance costs on the average accounted for 41% of rate increases. For example, 37% of State Farm's rate increase was attributed to increased reinsurance costs.

First-dollar reinsurance (70-90 percent of every claim paid by an insurance company in the amount of $500,000 or less) under the plan's proposed Hurricane Fund would cost the same as reinsurance provided by Florida’s Hurricane Catastrophe Fund (CAT Fund) in which insurance companies must, in the aggregate, pay claims totaling over $5 billion before any payment by the CAT Fund is made. Not true.
First-dollar reinsurance is considerably more expensive.

Negatively impact the AAA Bond rating Florida currently enjoys. This high level rating allows the state to obtain some of the lowest possible borrowing rates, saving taxpayers millions on projects such as educational, criminal justice and road construction projects.

“While solving our state’s insurance crisis is certainly a priority for Floridians, this ill-conceived proposal is not the answer. Davis’ plan creates an enormous fiscal liability for the state of Florida and the insurance arena. It is also so fraught with risk that it would undoubtedly force cuts for critical programs like healthcare and education when the time comes to cover Florida’s inevitable hurricane losses.”

Under the Davis plan, it would take approximately nine to ten years to build up enough reserves to cover the losses suffered from a storm similar to Hurricane Wilma. Over the 2004-2005 hurricane seasons, Florida paid out a total of $36 billion in hurricane claims. Covering losses of this magnitude could force the state into bankruptcy.

“Sure the Davis plan could work – as long as no storms hit our state. But that’s not likely, which is why Floridians need to recognize this is a fatally flawed plan. Where will the state get the money when Florida experiences its next bad hurricane season or even one devastating, but average, storm like Wilma?”

contacts

about us

Known as “The Voice of Florida Business” in the Sunshine State, Associated Industries of Florida (AIF) has represented
the principles of prosperity and free enterprise before the three branches of state government since 1920. A voluntary
association of diversified businesses, AIF was created to foster an economic climate in Florida conducive to the growth,
development, and welfare of industry and business and the people of the state.